Public Bill Committee

[Mr. David Amessin the Chair]

Further written evidence reported to the House

EN 07 Carbon Capture and Storage Association
EN 08 Mayor of London
EN 09 CBI
EN 10 Tom Burke
EN 11 Oil and Gas UK
EN 12 British Wind Energy Association
EN 13 Renewable Energy Association

The Committee deliberated in private.

On resuming—

David Amess: Welcome to our witnesses. I do not know whether you have attended a witness session before, but you will certainly not need that scarf on, Mr. Lee. We are going to take evidence so would you please introduce yourselves?

Sarah Samuel:   My name is Sarah Samuel and lead the climate change and energy team at the Sustainable Development Commission.

Andrew Lee:   I am Andrew Lee, director of the Sustainable Development Commission.

Dr. Gordon Edge:   My name is Dr. Gordon Edge, director of economics and markets at the British Wind Energy Association.

Maria McCaffery:   I am Maria McCaffery, chief executive of the British Wind Energy Association.

Gaynor Hartnell:   I am Gaynor Hartnell from the Renewable Energy Association, where I am deputy director.

David Amess: Thank you. We have five witnesses in only 40 minutes, so I ask colleagues on the Committee to bear that in mind. If someone asks one question and we get five replies, we will not make much progress. Perhaps our Minister would like to speak.

Malcolm Wicks: I will not, on this occasion, if you will forgive me, Mr. Amess.

David Amess: Absolutely.

Q 173173

Charles Hendry: May I begin by asking all our witnesses their views on the appropriate remit for Ofgem and whether they believe its remit and its primary duties should be changed to include a specific duty to reduce carbon emissions? I know the Sustainable Development Commission has brought forward a range of proposals on that, but do you believe it should have equal primary duties, or should one be secondary to another?

Andrew Lee:   Perhaps I could respond to that. In the Sustainable Development Commission, we think a big missed opportunity in this Energy Bill is the opportunity to change the framework within which Ofgem operates, and we think that has to start from the issue of the primary duty. At the moment, sustainability, or the climate change imperative, is a sub-duty of a sub-duty in the way Ofgem works. We would like to see a change in the primary duty as we think that is the keystone on which a changed approach from Ofgem could be built in the future.
We have put forward two options in our report and the first is to put the current consumer interest and the greenhouse gas duty one above the other. The other option, which in some ways is the more pure sustainability option is to say that these should be joint objectives and that the regulator should be required to deliver a regulated energy market in the interest of consumers while simultaneously reducing greenhouse gas emissions from the network. Out of that flows a series of other things, including what is a key issue for us—creating a regulated heat market. We think there is a huge missed opportunity that Ofgem can and should deliver.
Related to that is the issue of Ofgem in relation to the price of energy, smart metering and trying to create an environment in which consumers are well informed about their energy use and are able to make informed choices and in which low-income consumers do not pay through the nose for energy because of the tariff structure.

Dr. Gordon Edge:   Certainly what needs to change at Ofgem is an attitude and a culture that seems to think that it is doing very well when, in fact, it is being quite obstructive. By its own lights, it thinks it is doing well. We also need to recognise that it is not just Ofgem, but the whole governance structure of the energy sector, and particularly the networks and the number of code panels, that need to change. We see changing Ofgem’s remit as a last resort. That would be quite disruptive of the whole system while Ofgem digests a new primary duty, but we are not counting that out. Unless there are other options, such as changing the guidance given to Ofgem—if that is really strengthened and if that does deliver what we want in a short time frame, fantastic—but maybe, as a last resort, a change in the primary remit may be helpful. We are working with others on an amendment, which we may introduce in the House of Lords or later, that brings forward all four of the Government’s pillars of energy policy, as to what should be the drivers of Ofgem. That is merely one option and there are many.

Gaynor Hartnell:   The Renewable Energy Association’s position is more in line with that of the Sustainable Development Commission. Although we agree that we all have the same end objectives, we share the view that, without the primary duty being changed, there is very little chance of the scale of change and the speed with which we need to change actually happening in practice. Ofgem is clearly an extremely effective and strong regulator, and it is doing a very good job in regard to its current duties. However, it is no longer really aligned to Government policy, and we would therefore like to see the Energy Bill grasp the nettle and deal with that, because we really need to pull out all the stops, given the scale of the task required to get 15 per cent. of our energy from renewables by 2020.

David Amess: I think Mr. Hendry wanted everybody to say something.

Charles Hendry: I am happy with this.

Q 174

Steve Webb: Could one person from each organisation give us their view of the potential of renewables’ contribution to the energy mix, both in the short term and in the long term? I am interested in your views on the upper band and on the short term prospects, as it were, with a fair wind, if you will pardon the expression. In particular, does the banding of the renewables obligation help or hinder the potential contribution of renewables?

Gaynor Hartnell:   In the Renewable Energy Association, we believe that a 20 per cent renewable energy contribution is possible by 2020, and we have a paper that shows how that could even be slightly exceeded. At the moment, we have a renewable electricity obligation and we are shortly going to have a transport fuel obligation, but we need to have action across the whole breadth of not just the industry, but other parts of the economy as well. We really need more involvement with house building, with industry, and commercial applications. As far as the renewables obligation is concerned we feel it is extremely effective at the job it is designed to do, which is large-scale renewable power projects.
When it comes to on-site generation, these are entities whose core line of business is not developing power stations. It is incredibly complex, and the arrangements are not suitable to engage the kind of commercial entities that may want to generate some power for their own needs, but do not want to tackle all that complexity. So we believe it would be more appropriate to have something like a basic tariff structure—people are more familiar with the term feed-in tariffs—for smaller-scale generation, and I do not just mean microgeneration or under 50 KW, but you would need to have a boundary somewhere. That would be more appropriate to reach out to a wide range of sites that may be available: sites like sewage treatment works, waste management facilities, or next to warehouses, hospitals or industrial estates. These are not your typical renewable power station hilltop sites, but there are a vast number of them and they may well have advantages when it comes to planning. So the renewables obligation has to remain in place to give security to the industry. It would be extremely damaging if it were changed, but we believe that a feed-in tariff mechanism can coexist with a renewables obligation and widen the applicability. We also need an effective measure for renewable heat, and a tariff-based mechanism—clear straightforward and simple—is much more likely to succeed in following the renewable obligation tradable certificate kind of route.

Maria McCaffery:   The BWEA represents the wind, wave and tidal industry in the UK, but is exclusively concerned with electrical power generation. So I cannot speak for heat and transport fuels, where we work closely with the REA. At present, 4.5 per cent. of all our electricity comes from renewable sources. Of that, a third is wind—and that is predominantly onshore wind—and the balance of 3 per cent. comes mainly from hydropower, with a little from biomass. At present we have another 7,500 MW, which is equivalent to about 5.5 per cent. of electricity, stuck in the planning system for onshore wind alone. If two thirds of that could be consented to in the short term, we would comfortably achieve the 2010 target of 10 per cent. of electricity from totally renewable sources.
As far as the greater proportion is concerned, I am trying to concentrate on the time scales that you outlined. The greatest contribution is going to come from offshore wind and we will see exponential growth from around 2012 to 2020, with the bulk of it coming post-2015 as more manufacturers—we are confidently expecting more—come into the turbine-supply market.

Sarah Samuel:   Just to add to that, we recently did a big report on tidal power and we estimated that there is the potential for 5 per cent. of UK electricity to come from each of tidal-range and tidal-stream sources, so that is up to 10 per cent. of electricity in the longer term.
We are supportive of the banding of the renewables obligation; we think that that will help to develop technologies that are slightly further away from market at the moment, but we recognise that there are difficulties with the RO for very small generators and microgenerators and that an alternative support mechanism might be appropriate for those. Equally there is a package of measures around renewables that needs to be tackled, regarding barriers to smaller generators, network charging arrangements, access to the transmission network, and charging of generators connected to the distribution network. That is something that we feel that Ofgem and the Government need to act on together.

Q 175

Hugo Swire: To follow that theme, do any of the witnesses feel that the increased banding will encourage the necessary levels of extra investment for marine energy to prosper? If they believe that, do they believe that investors will follow, when there is the safer bet of offshore wind available, with almost as many renewables obligation certificates available? Do they feel that if there were higher ROCs banding, and if they were given to emerging technologies, that that would harm offshore investment, taking into account the changes to the planning laws being considered?

Andrew Lee:   Can I comment perhaps on the issue of tidal energy, which we have obviously featured heavily in the Sustainable Development Commission’s work recently? I think that our assessment of the potential for tidal stream technology—marine-current turbines and so on—is that although a banded RO is to be welcomed, it is not the measure that will be the key issue in the short term because those technologies are still at a very early stage. One of the technologies, a single turbine, is being tested in Strangford lough right now and the issue is about maintaining the level of investment and innovation funding and things such as the European Marine Energy Centre in Orkney, where you can actually plug in these technologies and test them. It is about that sort of commitment to innovation in technology because we have not yet got to the stage, as we did with wind, where we know which kind of technical solutions will deliver in the long term. The RO is perhaps for those technologies nearer to market. We also need the framework for innovation and investment.
The feedback that we got from the tidal industry players and some of the academics was that actually they were not that dissatisfied with the current regime; it was more about staying the course, and having very clear signals from the UK Government, and particularly the Government in Scotland in this case as well, that tidal technology is going to be an important part of the UK economy and innovation in the future. Therefore there is a lot to play for.

David Amess: I think that Martin Horwood wants to go back to the previous question.

Q 176

Martin Horwood: I just have a quick question for Ms McCaffery. You said that 5.5 per cent. of UK electricity-generating capacity on onshore wind was “stuck” in planning. By “stuck” did you mean literally stuck as in the process has ground to a halt or do you just mean “in process”?

Maria McCaffery:   I meant “in process”, but many of those applications have been there for more than 24 months and some for more than four years. That is what I mean by “stuck”.

Q 177

Martin Horwood: But the process is ongoing in each case?

Maria McCaffery:   Yes, it is—[Interruption.]

David Amess: Order. I think the noise we are hearing is caused by a mobile phone. It seems to have stopped. Please continue.

Maria McCaffery:   I am sorry. That has distracted me. What was the question?

Martin Horwood: I was asking what proportion of applications had ground to a halt, and whether the ones that had been going for a number of years were still in process.

Maria McCaffery:   If I may put it in context, local planning authorities are mandated to make determinations on 80 per cent. of applications within 16 weeks. After that, there are no targets. About 70 per cent. of all the planning applications put before local planning authorities are determined within 13 weeks. Of those, 5 per cent. are wind energy applications. There are clearly difficulties with the determination of wind energy applications, which planning authorities blame on poor resources, inappropriate qualifications and so forth. Whatever the reason, when I say “stuck”, I mean stuck. The majority of those applications have been there for much, much longer than the statutory determination period.

Gaynor Hartnell:   I was hoping to add to the question on green renewable technologies. I said that the renewables obligation is not a very suitable mechanism for smaller-scale generation. Similarly, it is not ideally suited for emerging technologies where one is expecting the price to go down fairly rapidly, because it builds in quite a lot of inertia. A feed-in tariff is more effective for that kind of technology as well. Our wave and tidal device developers look with envy at countries such as Portugal and Ireland, which have feed-in tariffs for marine renewables, and expect to do business in those countries where that policy makes the climate much more conducive to their business.

David Amess: Before I turn to colleagues on my right, I call Mr. Hugo Swire who wanted to ask a question.

Q 178

Hugo Swire: I just wanted to ask whether any other witness would like to respond to my previous question.

Dr. Gordon Edge:   I would certainly back everything that Andrew said in terms of the UK’s strong technological lead and intellectual infrastructure, the resource and research base we have for the marine technologies. The Government have recognised that even the two ROCs that the banding will give to wave and tidal are not enough for where those technologies are at the moment. Our concern is to do with the marine renewables deployment fund, which is struggling to get successful applicants because of entry criteria and so forth. We would like to see that process becoming easier, and see that something comes after it. The fund will support only four different technologies, once only. There is nothing beyond that. There is a gap between the MRDF and what will work under two ROCs. We would very much like to see the Government put something in place to ensure a strong development path.
Your other question was, “Is that going to interfere with offshore wind, and the one and a half ROCs?” Not a problem. The two ROCs given to wave and tidal will be a small proportion of the RO. When we asked our offshore developer members, they were very pleased with one and a half ROCs; it was competitive with other countries and their feed-in tariffs and other support mechanisms for offshore wind; and it reinforced the UK’s position as the premier offshore wind development country in the world. We have the largest market, and we will have half the world’s offshore wind capacity, going forward.

Maria McCaffery:   May I supplement that very briefly? When it was announced last May that there was an intention to increase the ROC multiple for offshore wind to 1.5 per cent., the UK rocketed back up into second place in the world league table for investment. The global investor community turned its sights back to the UK and saw a tremendous opportunity. That is what our offshore developers are responding to, and that is what we must ensure we maintain.

Q 179

Paddy Tipping: It is sometimes argued that social tariffs and renewable obligations are an either/or choice. I was interested in Gaynor Hartnell’s point that you can do both. One criticism is that the Bill does very little to encourage microgeneration. Is the argument that feed-in tariffs are a way of increasing microgeneration?

Gaynor Hartnell:   Can I reinforce the point that I made earlier? It is not just in microgeneration that we see a role for feed-in tariffs; we see a role for commercial entities whose main line of business is not power station development because it is too complex for them. Really, that is important. A wind turbine of less than 50 KW is not inherently better than a larger-sized one next to a commercial development. That is one of the problems that we have with the renewables obligation; there have been attempts to make it more effective for microgeneration and none of them will really do the job. Some 70 per cent. of Ofgem’s time administrating the obligation is spent dealing with less than 1 per cent. of the renewable generation in the country. It is all spent on small applications, which is not very useful for them or the wider industry. I stress again that it may be up to 1 or 2 MW that we see there being a role for a feed-in or a production tariff kind of mechanism.

Andrew Lee:   May I pick up specifically on the link between social objectives and climate change? It is an issue that we were animated about in the Ofgem report. Our assessment is that there is a market failure at the moment on two fronts. First, consumers are not well-informed about the consequences of their energy use; in fact, they cannot even get the information. Secondly, the market is not serving low-income consumers well. In other words, the poorest people are often paying the highest tariffs—unacceptably high—and that difference has got greater over time: from £17 difference in an average bill up to £120 over the past few years. The gap is getting worse. Those things need to be addressed because, to get where the UK needs to be, we need consumers to be able to take control of and to be empowered to use their energy more effectively. We also need to be driving social policy in a way that disconnects people from fossil fuel dependency in the first place, through the energy efficiency measures and rest.
I have two very specific recommendations: one is about smart metering—again, we think that this is a missed opportunity in the Energy Bill. I know that there is a complex and arcane debate going on, which I do not fully understand but others here do, about smart metering, real-time displays and different types of metering options. However, the point is about the outcome you want. The outcome has to be that consumers are able to make informed choices about their energy use based on accurate information at the same time as energy companies are able to get more information about how they are supplying their customers. Each proposal should be tested against that. That may be a combination of metering solutions and, of course, smart billing as well; it is the whole package that fits together. The second thing is to tackle these perverse social tariffs. It is unacceptable that some of the poorest people in society are paying the most per unit of energy. That market failure has to be addressed.

Q 180

Albert Owen: May I go back to Miss Samuel’s and Mr. Lee’s answer on tidal energy? I am not clear whether 10 per cent. is just an aspiration or whether you think that the technology can achieve that? Was Mr. Lee saying that it could happen now but that the technology was not available or was Miss Samuel saying that there were barriers that we should be looking at in the Bill? I am not sure whether the technology is advanced enough. There is only one prototype, although there is planning permission in my area. What is the major barrier? Is it the technology or is it the regulation and things that the Bill could assist with?

Andrew Lee:   The 10 per cent. figure comes from two parts: one is tidal range technologies—barrages and tidal lagoons—where the technologies are proven, but there are obviously huge issues about cost and environmental impact. We have said a lot about the Severn barrage in that respect. The 5 per cent. figure from tidal ranges really comes down to whether we going to do the Severn barrage and under what conditions, because it is 90 per cent. of the UK tidal range resource. Tidal stream technology is a different issue, because it will be a distributed technology, and various designs are coming forward and being tested at the moment.

Q 181

Albert Owen: Are there working models elsewhere that could be adapted?

Andrew Lee:   Sorry, working models elsewhere?

Albert Owen: Yes.

Andrew Lee:   I think that we are leaders, pretty much, in this technology.

Sarah Samuel:   The UK is leading in tidal stream technology. We have one of the highest numbers of the most advanced tidal stream developments anywhere in the world.

Andrew Lee:   So it is the winnowing out of the technologies that will really deliver in the long term, and it is having a regime that allows the connection of distributed arrays of tidal stream devices around the UK coastline in the future. If anything, we think that the estimates are an underestimate. If you look at the scale of the resource, the amount of tidal stream that we have is huge. Of course, some of it is so powerful that it is difficult to get the technology right—looking at the Pentland firth, for example.

Q 182

Albert Owen: One final point on the connections: are you not competing with offshore wind? Are tidal and wind competing against each other?

Dr. Gordon Edge:   At the moment, no, because they are so much smaller than the offshore wind developments.
I just wanted to back up something there: technology is the key issue at the moment, but we need to be very careful that we do not overload this technology with burdensome environmental and other regulations, surveying and so forth. It is at a very early stage and if we take an over-precautionary approach and have so much monitoring and surveying that it cannot be made to work, because it is just too burdensome, then that is a real problem. That is a danger that we have to be looking out for.

Q 183

John Robertson: Could we clear up some questions about funding? One of the complaints with renewables is that we have always put money into wind and that we have forgotten about the other kinds of renewables that we can have. I noticed that you said that you agree and get on well with each other, but are you not competing for the same money and for the same resources that you are trying to create? If not, could you tell me how you get your funding money? How much comes from Government and how much from business?

Dr. Gordon Edge:   The renewables obligation has been, heretofore, a technology-neutral mechanism. In fact, the big winner out of it has been landfill gas. Of the renewables obligation, only about a quarter goes to onshore wind, a third to landfill gas and another 10 to 25 per cent. to biomass co-firing. So there has actually been a range of technologies supported under the renewables obligation, as it now is. When we go into banding, that will spread further, because there are technologies that cost more; the one and a half ROCs for offshore wind and the two ROCs for wave and tidal recognise that.
As for the other question on where the money comes from, all the money for on and offshore wind—apart from some capital grants for the round one projects for offshore wind—is entirely private sector investment. The revenue comes from the renewables obligation, but there is no direct Government money involved in there at all.

Q 184

John Robertson: How much of it is indirect?

Dr. Gordon Edge:   It is all mandated under the renewables obligation, which is an imposition on suppliers to supply that. In terms of how much income, a ROC might get in the region of double the amount compared to what you would get for just the power output—for one ROC per megawatt-hour.

Gaynor Hartnell:   I just want to clarify something that Gordon said on the subject of landfill gas. Most of the landfill gas has been contracted under the previous policy—under the non-fossil fuel obligation—but it is true that it generates about a quarter to a third of the renewable electricity at the moment.
Another point about where the investment has gone is that, so far, it has gone mainly into wind and some co-firing. One of the reasons for the Government wishing to change the obligation has been to bring about more diverse progress among different technologies. One of the things that we would like to see is a more pragmatic approach towards the calculation of the biomass content of fuels. That does not have to be done for wind, but it is necessary for the thermal technologies. Those kinds of measuring and administrative procedures are very onerous, to the extent that, sometimes, a biomass power station really could not be built or funded because of difficulties with determining the biomass content and proving that it is biomass and not contaminated to any degree. It would help if we had a much more pragmatic approach towards that.

Q 185

John Robertson: Do you think that Ofgem should get involved in this kind of discussion and have an influence?

Gaynor Hartnell:   Actually, Ofgem has been fairly helpful with this. It has produced quite detailed guidelines, but it is working within the bounds of what the legislation says, so that needs to be addressed first. It can only do so much to assist.

John Robertson: You are the first person we have had here who has said something nice about Ofgem—other than Ofgem.

Q 186

Nick Palmer: The British Wind Energy Association has briefed MPs about its concerns about the RAF’s objections to a number of offshore wind farms on the basis, as I understand it, that it feels that any impact, even if small, on radar is to be objected to. What proportion of the contribution of offshore wind farms that you were describing earlier would be affected by that type of objection—all of them or a small proportion?

Maria McCaffery:   It is quite a big proportion. I would not like to offer an accurate figure as a percentage of the total that we expect, but we feel it is more than it ought to be.
Could I pick up on one important point about our difficulty with the Ministry of Defence? It is not so much the basis of the objection; it is the point in the planning process at which that objection is raised. The MOD is naturally a statutory consultee, and in too many applications over the past year, it has indicated at the very early stages that there are no difficulties. So the application process has progressed; very significant costs have been incurred; and hopes have been increased. It has got closer and closer, with a high expectation of a decision in favour, only for the MOD to raise an eleventh-hour objection that kills all the momentum in the application and has incurred considerable costs. This is a primary concern and an issue that we are working to address with the MOD and with DBERR. That is an immediate issue.
A broader and more general issue is the need, we believe, to revisit and question the fundamental assessment of risk. Germany, Denmark and Spain all have three to four times the number of operating turbines and do not seem to perceive the same degree of risk that our defence estates are viewing. We want to challenge that.

Dr. Gordon Edge:   Perhaps I could—

David Amess: I am going to intervene. I allowed the question, but it is very wide of the scope of the Bill; it is more a matter for a planning Bill.

Q 187

Martin Horwood: Energy from waste comes into the renewables obligation under the proposed bandings as part of the reference band. Can you tell me whether there are sufficient safeguards, under the current or proposed regime, on other environmental impacts, such as toxic waste, relating to energy from waste, and whether there is enough differentiation between types of incineration or energy from waste power generation?

Gaynor Hartnell:   I think that I am probably best qualified to answer that. There are many safeguards for energy from waste plants. The waste incineration directive has more rigorous emissions limits than a coal-fired power station would have to comply with. There is extensive material from the Department for Environment, Food and Rural Affairs on the health impacts of energy from waste that provides a reassuring backdrop to the roll-out of energy from waste, which we will need if we are going to meet our landfill diversion targets.
On the question of how the renewables obligation deals with energy from waste, it is one of the most complex areas in the whole of the renewables obligation. Since the renewables obligation started in 2002, energy from waste plants that use gasification or pyrolysis technology were eligible to earn ROCs. Not one ROC has yet been earned by such a plant. That has been held back by what I was talking about earlier—the difficulties with the measuring requirements and the need for accuracy beyond all hope of meeting it. We need to have changes on that.
All in all, I think that the renewables obligation would probably be a better piece of policy if it were less prescriptive about which technologies would earn which level of ROCs, when it comes to energy from waste. I would need quite a lot of time to explain the intricacies.

Q 188

Martin Horwood: That almost sounds like an argument against banding, does it not?

Gaynor Hartnell:   No, since the very beginning—since 2002, before banding came along—you can have differentiation between the technologies without a banded obligation and this has been inherent since the beginning. In terms of what qualifies and what does not qualify and what proportion of ROCs it would earn and what it would not, it has been complicated and it does not threaten to become any easier with some of the proposals that are on the table. In particular, if anybody does have knowledge of this, making the RO neutral to waste is a good idea. Making the RO neutral to just solid recovered fuels, which is a kind of waste, on its own, is not a good idea. It increases the complexity and does not really deliver any policy objectives very effectively.

David Amess: This may have to be the last question.

Q 189

Martin Horwood: Does the Sustainable Development Commission want to comment?

Andrew Lee:   The only specific advice provided to the Government on this is, in fact, in Scotland, and I would only say that, even with the best managed waste hierarchy, there will be a component of energy from waste in the system and we think that that is acceptable under certain conditions. I cannot really go into the detail of what you have said. But I go back to the heat point as well when we are talking about waste, which is a huge wasted opportunity currently in another area.

David Amess: Mr. Jamie Reed has been waiting patiently.

Q 190

Jamie Reed: One brief question, aimed at Andrew Lee and Sarah Samuel principally: feed-in tariffs are something I am frankly excited about and encouraged by, but I do have real concerns about them, particularly with regards to fuel poverty. Do you have any fears that feed-in tariffs are something that only the middle classes could really benefit from?

Sarah Samuel:   The principles of sustainable development mean that you need to move on all these things at the same time. You need to have a just society and to live within environmental limits at the same time, so we need to find solutions that will work and move all those things forward together.
In our view, on the fuel poverty agenda, it is really important to improve energy efficiency measures, so that people and households are more resilient to any increases in their energy bills, because they are using much less energy, so any increase in prices will have a much lower impact on them.
At the moment, there does seem to be a view that recent energy price rises have been contributed to by environmental costs. We are doing a piece of analysis at the moment—it is still a work in progress—but the evidence that we have suggests that that is not really the case. About 8 per cent. of a typical electricity bill is related to environmental costs, so it is hard to believe that that actually constitutes the recent 15 per cent. increase in energy bills that have been around. Our view is that energy bills will rise and we will have to increase costs to implement more renewable energy and to live within our environmental limits, but there are ways of tackling fuel poverty alongside that.

David Amess: I have to interrupt you there. Finally, Dr Alan Whitehead just has a couple of minutes.

Q 191

Alan Whitehead: I have a particular question for Gordon, Maria and Gaynor about grid connections, offshore and the issues that are tackled in clause 40 of the Bill. Do you think that the mechanisms proposed to come into place under clause 40 will provide the sort of grid infrastructure that one might expect will be necessary, bearing in mind the very substantial offshore and, indeed, tidal increase anticipated?

David Amess: A very brief answer, please.

Dr. Gordon Edge:   We have been consulted very heavily on the arrangements that are in the Bill, and we would like to get on with it at the moment. Certainly, when it comes to the current projects that are out there, offshore wind projects are one type of project, line to shore, that works very well. We would like to come back to it in two or three years and have a look to see whether it is working well and, if all the measures are appropriate, to do things such as the large interconnection that we expect will need to be done—the large strategic connections that will be required for the round 3 larger projects. We want to come back and have another look at it. We think that it is entirely possible that we can tweak it a bit to make sure that it is working well. We also want to have a bit of experience. We need to find out what the projects will be. We need to find out what the plans are across Europe, in the European action plan on offshore wind that the Commission will bring forward and the plans for the grid quarter thatGeorg Adamovich will bring forward. That will all become clear in the next two to three years. If we can revisit it then, at least in a minor way, to ensure it is fit for purpose, we will be very happy.

David Amess: I would like to thank the witnesses very much indeed for the evidence that they have given. Would they now swap places with our second set of witnesses?
Good morning. Could you please introduce yourselves?

Roddy Monroe:   I am Roddy Monroe. I work for Centrica Storage as the regulation manager. I also chair the Gas Storage Operators Group.

Sonia Youd:   I am Sonia Youd, and I am the commercial director of Centrica Storage.

Paul Dymond:   I am Paul Dymond. I am operations director for Oil & Gas UK.

Mike Tholen:   I am Mike Tholen, Economics and Commercial Director for Oil & Gas UK, the trade association.

Dr. Jeff Chapman:   I am Jeff Chapman, chief executive of the Carbon Capture and Storage Association.

Chris Mansfield:   My name is Chris Mansfield. I am a UK regulatory affairs adviser for Shell’s European exploration and production business, but I am here today in my capacity as chair of the CCSA’s regulatory working group.

David Amess: Perhaps I should say to everyone that this is a short session, and we do not want to have six answers to one question. I obviously want to call everyone. I see you indicating you want to be called, but it is a short session. The Minister wishes to kick off.

Q 192

Malcolm Wicks: Can I ask a question about carbon capture and storage, which is exciting a great deal of interest? Perhaps this is a question for Jeff Chapman, but Chris Mansfield may want to come in. First, can you, albeit very briefly, give us a quick expert overview of where you think this technology now is, worldwide? At what stage is it? Secondly, within that, where do you think that the UK is, compared with other nations, in terms of this new and exciting development?

Dr. Jeff Chapman:   In a worldwide context, there are a number of main players in the carbon capture and storage area. They are Europe, north America, including both the USA and Canada, and Australia. Then there are the major opportunities that will come from the developing world, particularly China and India. I will take those in turn.
Europe, of course, has proposals for up to 12 demonstration projects to be implemented by 2015, and the UK should play its part in that process.
In the USA, there is an awful lot of activity in the area of carbon capture and storage. Recent headlines about the American Government’s withdrawal of support for FutureGen is not a true indication of what is going on there. There is tremendous support for carbon capture and storage, and it will happen. It will be the USA’s engineered solution to climate change.
In Canada, even very recently, the aim has been announced to have a large number of CCS plants delivering by 2015. The Canadians have particular problems there, having got themselves into a position of being about 270 million tonnes a year over their Kyoto target, mainly because of the production of oil from tar sands in Alberta.
In Australia, a number of projects are under development, and the Government there has taken a strong lead—as has the UK Government—in the development of regulation.
China is very well aware of the problem that it faces, and it is by no means ignoring it. There are some very serious companies that recognise exactly where they need to stand in the future in the development of CCS. 
India is a bit further behind; but just as an example, our latest recruit into the Carbon Capture and Storage Association was Reliance Industries of India. It knows what is going to happen in the future.
In the notes for this meeting, you referred to the Stern report’s view that 28 per cent. of the 2050 target could be delivered by CCS. That is the most enormous market in the future. It is likely to be the biggest single market opportunity that the energy industry has ever faced. Where is the UK placed? As a result of the work that has gone into the Energy Bill, the UK is extremely well placed in terms of policy. If we look at where the UK has established itself because of a policy lead on emissions trading, we can do the same with CCS. The Government have been congratulated for getting the policy in place for the regulation of CCS ahead of most other countries. What we need now is the financial incentive to get on and do it, because there is a huge amount of enthusiasm in business to get on and install CCS projects, especially in the UK.

David Amess: I know that you all want to say something, but if I allow that, we will never get through the session.

Q 193

Charles Hendry: May I follow that with three specific questions on carbon capture and storage? First, when is the earliest time that CCS could be up and running commercially in the UK? Secondly, do you think the opportunities here are equally great for pre-combustion and post-combustion? Thirdly, what do you estimate to be the necessary cost of carbon in euros per tonne, in order for CCS to be economically viable in this country?

Dr. Jeff Chapman:   There are four pre-combustion capture projects under development in the UK. I have to say that they are on a go-slow now, because of the decision to support post-combustion capture. All of those four projects are being confidently developed by very serious organisations that understand the technology. They claim that they could be in operation sometime in the period of 2011 to 2013. So we do have projects that are ready to go, and certainly in a time scale quicker than the Government-supported demonstration plant, which is talking of 2015.
In regard to post-combustion versus pre-combustion, pre-combustion is a technology that is going to be extremely important in the future for two reasons. First, because of carbon capture and storage, it is a very good way of generating power. Secondly, this is the start of the hydrogen economy. If anyone says hydrogen is going to be produced in large quantities from renewable energy or nuclear power, that is very unlikely. This will be the most efficient way to make hydrogen in the future, and with carbon capture and storage, there will be clean energy using hydrogen as a vector. That is very important for pre-combustion technology; it is a very important place, and we in the UK need to be there.
I am not denying that we also need to demonstrate post-combustion capture, particularly as a political gesture, to show China and India that we mean business. What does it take in terms of money? A lot of figures have been bandied about, and I really cannot give you a figure. The lowest-hanging fruit of carbon capture and storage is storing the CO2 that is associated with natural gas. Examples of that are the Sleipner project in the North sea and the In Salah project in Algeria. In each of those projects, the cost is less than $10 per tonne of CO2 put away, because it is already separated. In terms of power projects for the UK, we are probably talking within the range of €50 to €100. Until it gets off the drawing board and we lay down some plans, we will not have price discovery. The good thing about the competition is that there will be some element of price discovery. We need more of that to go on in the UK, in Europe and elsewhere.

Q 194

Steve Webb: Just to press you further on what you have just said, which was very helpful, my perception is that the competition that the Government have established has picked a technology and you are saying that the other technology is very important, could lead to a hydrogen economy and has been put on go-slow because of the Government favouring one over the other. Is it your view that, for example, there should be another competition for pre-combustion technology? Are you worried that the time scale for the competition that we have got is unnecessarily slow and that we need to get on with these things faster?

Dr. Jeff Chapman:   Yes, I am saying that. I am saying that the time scale for this competition is not in proportion to the requirement to re-plant the electricity industry in the UK. We will inevitably have more and more coal-fired power plants coming forward and they need to be equipped with carbon capture and storage very quickly; otherwise UK emissions are going to increase. We will have to build coal-fired plants; otherwise the UK and all the suppliers of electricity will become over-dependent on supplies of gas. That is not good for the country or for the electricity generators.

Chris Mansfield:   There is a tremendous window of opportunity in the years ahead. Estimates suggest that because of the impact of the large combustion plants directive and because of the retirement of ageing plant, the UK will require something in the order of 20 GW of new power generation before 2020. I put to you that that probably represents a once-in-a-lifetime opportunity to ensure that these new plants are fitted with carbon capture and storage technology. That is a very important dimension. That timing seems to coincide to some degree with the depletion of existing oil and gas fields and the availability of capacity in some of that infrastructure, so a tremendous potential for reuse is opening up and that window of opportunity may not be available to us if we do not seize it now.

Q 195

Jamie Reed: I do not think there is any doubt that every Member of this Committee and of the House wants to see us succeed and succeed quickly in carbon capture and storage; it really is that imperative. I have three quick questions. How is CO2 actually stored? Over what time frame is it envisaged that it will be stored? What will CCS do to the generating cost of oil and gas electricity?

Chris Mansfield:   Storage in offshore or indeed onshore depleted oil and gas fields, and deep saline formations—otherwise known as aquifers—are the two principal means of storing CO2. The Department for Business, Enterprise and Regulatory Reform, in conjunction with the Ministry of Petroleum and Energy in Norway, undertook an infrastructure study earlier this year which is publicly available on the Department’s website. It looked at the storage potential in both the UK and Norwegian sectors of the North sea. If I recall correctly, it indicated that the UK has storage capacity of the order of 24 gigatonnes; about 14.5 gigatonnes would be in aquifers and the remainder in depleted oil and gas fields. To set that in context, if you say that a very large 1 GW power station will emit of the order of 6 million tonnes a year, you can see that the storage potential the UK has puts us in a very strong position for many years.

Dr. Jeff Chapman:   What impact will it have on the cost of electricity? In the short term, the kind of figures I have just mentioned are not uncompetitive in relation to the cost of other near zero emission power-generation technologies, such as renewables. CCS is very competitive in that context, and ought to become more so as designs are proven and the price falls. In the long term, we all believe that the EU emissions trading scheme will be the mechanism that induces people to invest in carbon capture and storage and to that extent the technology will not have any effect on the price of power because the power generators would have to buy their allowances in the market regardless of CCS or other technology.
What I will say is that we have the most enormous opportunity, when the Government are going to receive windfalls of very many billions of euros from auctioning EU ETS allowances, to return that money for investment in clean technology in the power industry. Clause 10 of the EU ETS directive suggests that at least 20 per cent. of these revenues should be recycled for various purposes, including CCS. That is good, but what I am saying is, “Government, don’t say that you don’t have the money to support CCS because you certainly do”.

Q 196

Jamie Reed: The point I was making was: which companies are going to look after the deposited CO2 in these aquifers, for how long and how much is it going to cost?

Chris Mansfield:   In principle, if you look at the provisions in the Bill and the proposals put forward by the European Commission in a draft CCS directive in January, the intent, which is very much supported by industry, is that that is a liability that should be taken on—at an appropriate point in time—by the state. I do not think that any viable business can expect to take on that level of liability in perpetuity. I think that society rightly expects that that is a liability that the state must look after. Businesses do not last for ever. I am pleased to say that nation states do seem to last a little longer.

Q 197

Anne Main: I want to go back to a comment which I think I heard Dr. Chapman make. I think he said that if we did not go down the cleaner technology and hydrogen economy route, we would be building more coal-fired power stations.

Dr. Jeff Chapman:   Yes I did.

Anne Main: Do you feel then that a push to perhaps having more coal-fired power stations as part of the mix would divert some investment in CCS?

Dr. Jeff Chapman:   No, because all the conventional power stations that are being proposed—six are being proposed at the moment, totalling 9,100 MW, and more are probably on the drawing board in power generators’ offices— need to be built to replace plants that are coming offline because of the large combustion plant directive. These are portfolio generators and they need to maintain their portfolio; they need to keep a balance of fuels in their mix. So, they are proposing that these plants be built anyway. Of course, the first one has already applied for planning permission—the E.ON project at Kingsnorth—and there will be more to come.

Q 198

Anne Main: So, it is not a diversion. Similarly, do you not feel that going to post-combustion is a diversion either?

Dr. Jeff Chapman:   It is not a diversion. We have to consider how quickly we are going to make sure that these plants are incentivised to put in place carbon capture and storage.

Q 199

Paddy Tipping: We have heard a lot about carbon capture and storage from the Carbon Capture and Storage Association. Would colleagues from the oil and gas sector talk to us about the timetables involved, because there are enormous opportunities for you as well, but significant difficulties too? Give us a snapshot of how you see it.

Mike Tholen:   I think that we reflect on two points. First, as the gentleman on my left mentioned, there is a timetable for many fields decommissioning. Many fields are now of mature years and, unless we see new production come through them, they will be decommissioned. There are still billions of pounds of assets in the North sea. Many could be used for carbon storage, in part, but will be taken away unless that new technology is sitting on the doorsteps when we are ready for that to happen. So, time scales are crucially important.

Q 200

Paddy Tipping: Give us some indications of the time scales.

Mike Tholen:   The best example that I can think of straight away is the Brent field. It is not one currently targeted for carbon storage, but was due to have been closed down and taken away perhaps even 10 years ago. It still has a productive life, but I know that the company concerned is beginning to think about decommissioning and the field could well be gone in the next 10 years. So, what we are looking at is that, unless we see the new facilities coming within the next five years, the decommissioning train will then be moving too fast to stop.
We are in good conversations with both the Treasury and DBERR on how to treat the fiscal aspects of decommissioning; we are also thinking a little about the planning—there have been changes to the tax rules recently. So, the Government are interactive with the industry, which is very important.
The other aspect of carbon storage and, for that matter, gas storage is that we try to do things in the right order. For many cases, it is actually good that if we see an oil and gas opportunity, we do that first, because it both liberates a huge value for the nation but also, on top of that, discovers things that will make future carbon storage easier to understand and do, as we see how reservoirs behave. Our plea would be to do things in the right order, to look at the time scales and to make sure that we are effective because of it.

David Amess: Would any of our other witnesses, who have not spoken, like to comment? No, so I call Dr. Alan Whitehead.

Q 201

Alan Whitehead: Witnesses from both the Carbon Capture and Storage Association and the oil and gas industry have mentioned the importance of meshing in carbon capture and storage to the continued supply of gas and oil—particularly gas for power stations—and we have mentioned coal for power stations. Do you see any compatible or additional role for heat capture in power supply? What time scales would you put on those processes? For example, do you see that the current applications for new coal and gas power stations might reasonably—in terms of their CO2 content—have a heat capture obligation placed on them in advance of any requirement to develop carbon capture and storage, so that we can have a seamless low-carbon future for both sources of energy?

Dr. Jeff Chapman:   It is difficult to see how heat capture could be mandated in some way—I think that is what you are suggesting. I am not sure that I can speak to that. What I would say is that a number of the new projects coming forward could look at heat capture. I will quote to you one of the proposed projects in particular—ConocoPhillips at Immingham. ConocoPhillips has proposed to build a bank of gasifiers to supply a combined heat and power plant, which will be the biggest combined heat and power plant in Europe, a superb, showcase plant of 1,200 MW. The idea is to make hydrogen out of coal imported into Immingham, and to supply hydrogen as a feedstock to the oil refinery. In one fell swoop, that project could decarbonise a quarter of the oil refining industry—that is, heat, power and hydrogen.

Q 202

Alan Whitehead: I wonder whether I could press our witnesses from Oil & Gas UK on the inevitability of problems arising from the very high carbon content of continuing to supply gas to the UK energy production market. Bearing in mind what we have heard about time scales for carbon capture and storage, do you consider any moves from the gas supply industry to register concern about or action on the fact that, in addition to carbon being captured, the heat that is produced—usually wastefully as a result of gas being used in power station supply—might be regarded as part of the process in future, particularly in terms of what we have heard about the development of combined heat and power plants, for example?

Mike Tholen:   There are two drivers. First of all, the drive to produce gas or maximise gas recovery from the nation’s offshore resource is important, because that has been a major driver to reduce our carbon footprint as a nation. Particularly in the 1990s, that really changed the carbon emissions of the UK. I know we are working closely with DBERR and with industry to find ways to deliver the west of Shetland’s gas, and there are also some major issues still to be resolved in terms of making sure there is capacity in the national grid infrastructure to bring that ashore. There are therefore some big hurdles to leap over, commercially and physically, to make sure that it can be brought ashore. Physically bringing the gas ashore, maximising recovery, is a good first step.
Secondly, many of the facilities that are there for the processing of gas into usable fuel are unlikely to be changed because of any new emerging technologies, because they are there because of what we have got at the moment. We have to let the market help deliver the best solutions it can, such as those that Dr. Chapman mentioned from ConocoPhillips, as bright new ideas to really move the agenda on. We try to maximise as best we can from where we are now, and we try to open the best door to the future with new fuels.

Q 203

John Robertson: I wonder whether I could get some information about abandoned wells. In clause 70 of the Bill, the Secretary of State demands information from the people who do the drilling. Do you see any problems with this clause, in terms of the Secretary of State receiving the information or the person who would be held accountable for not supplying the information?

Paul Dymond:   No, the production of information on wells is usually fairly straightforward, and I do not see any implications at all of what is being asked for here.

Q 204

John Robertson: Why do you think that clause is there?

Paul Dymond:   I have no idea.

Q 205

John Robertson: It is one for the Minister, then. Do you think the Bill provides sufficient powers to enable the Secretary of State to ensure that licence holders fulfil their duties under the licences?

Paul Dymond:   There are a number of parts in the Bill asking to tighten up certain pieces. Licensing has been going on since 1964, and there are hundreds of licences. Within each licence, there are tens of part-licences, so the licensing process today is exceedingly complex. Whenever assets or parts of licences get traded, an enormous amount of legal work needs to be done to track where everything is going and the obligations and benefits that result from those licence transfers. Tracking that is quite a difficult process, and companies have trust deeds between one another to make sure that they get the benefits and not the disadvantages of other parties working on other bits of the licence. So some of the pieces that have been asked for in the Bill are to help the Government keep track and to ensure that companies properly carry out their obligations to keep them informed of changes as part of the consent process. I think that is fair.

Q 206

John Robertson: So do you think that is increasing the burden and making it more complicated, or is it less complicated?

Paul Dymond:   Because the process has been going on for so long, companies have commercial and legal mechanisms to cover this for themselves. What is really important is that some of the new powers that the Secretary of State will have as a result of the Energy Bill do not work against, but with those mechanisms that are there.

Q 207

Brian Iddon: I have a couple of questions. One is about enhanced oil recovery, coupled with gas—for example, carbon dioxide storage. How intimately are these connected? Does the enhanced oil recovery help significantly to keep the cost of CCS down?

Mike Tholen:   Conversations some years ago always linked EOR—enhanced oil recovery—with CCS. What we have increasingly seen for a lot of the North Sea, is that we have used other tertiary forms of oil recovery already, be it gas injection or water injection, so that not just the first but the second flush of youth in terms of oil and gas recovery has already happened on these reservoirs. So typically, CCS is unlikely to form a great alliance with enhanced oil recovery.
There are one or two newer fuels that may be different candidates. I know that a whole range of companies are looking at means to see if that can work. But mostly the economics are not such that you can afford to bring the gas all the way from the power station to the offshore field, though the economics might change if the carbon happened to be passing their door. So if we see the CCS industry emerge, we may see EOR emerge in a way that the hurdle is not currently there to deliver.

Q 208

Brian Iddon: My second question concerns liquid natural gas brought in by shipping, compared with gas brought in by pipeline. Could the gas people tell us something about the competitive economics of that, and the advantages or disadvantages of each of those methods of importing gas?

Mike Tholen:   Gosh—there are some good examples in the current market. Over the last years, we have seen all three forms of supply available to the UK market and, in many cases, pipeline gas has started to displace even the UK’s own production because the cost of production of very major fields in the Norwegian sector or even Russian gas are actually displacing the more expensive gas in the UK’s own resources. LNG is in the middle or higher price range of that, and with the very competitive market we have in the UK, we will see that continuing, where those are going to fight against each other— LNG and pipeline gas—and start, in some cases, to displace the UK’s own production.

Q 209

Brian Iddon: So what are the advantages of importing LNG if it sits in a higher price band?

Mike Tholen:   It depends where the price band starts to be. If the price evolves in the future so we see a more expensive market rather than a cheaper one, we have access to a global LNG resource. Or if we see the market relatively low in prices, there may be other parts of the globe that may be more attracted to LNG. It brings a security of supply and an additional dimension of supply, which must be good for both the market and the consumer.

Sonia Youd: Some people see LNG in terms of having diversity of sources, so you would have many sources available and you can then create a better security of supply base. One of the other things about the LNG market is that you are seeing some LNG cargos now being diverted because they are moving towards the Asian markets and we will see them moving toward the north American markets. So all these different sources are competing, depending on what the market is doing in various parts of the world, and increasingly in Europe as well.

Q 210

Charles Hendry: Can I ask a question specifically about gas storage? My understanding is that we typically have about 12 winter days’ supply of gas stored, compared to other European countries where they would have 60 to 80 days’ storage. Do you believe that a target should be set for how much gas storage we have in this country, taking account of the fact that we also have LNG facilities and the pipeline infrastructure? Do you believe that the Bill would be an appropriate vehicle for bringing forward such a target?

Sonia Youd:   Basically, the amount of gas storage that we have now is part of our historical supply mix because, historically, we were always reliant on some of the shaping that we had from the indigenous gas in the UK. Now that is declining, and with that decline has come a tighter position in terms of summer-winter cover—that is being able to shape gas so that you can turn it down in the summer and turn it up in the winter.
Regarding a target, I think that it is very difficult to fix on a particular number that will give you the right amount of storage in comparison to our European counterparts, mainly because, as an island, we have quite diverse sources of gas supply; we still have a fair bit of indigenous gas shaping going on. One of the things about the Bill is that it provides us with a good platform for moving forward towards starting to bring offshore storage into that mix. Those projects are becoming economical and this gives us a good base from which to go forward and develop them.

Roddy Monroe:   As the Gas Storage Operators Group, we discussed the issue of targets and I think that the one thing we agreed on was that if you set a target, you will get it wrong. It is very difficult to define accurately what the target should be because of the unique mix of supply that we have in the United Kingdom. We think that allowing the market to determine the mixes and levels of different types of storage is probably the best way forward on that.

Dr. Jeff Chapman:   I want to ensure that we cover a certain point today in relation to carbon capture and storage and that is to do with regulation: who regulates carbon capture and storage? The Energy Bill makes proposals but it leaves some scope for things to go wrong. It is no coincidence that we are sitting here with colleagues from the oil and gas business. There is a department in DBERR that has all the expertise in regulating oil and gas and we in the industry would like to deal with one organisation; we would not like to see that expertise duplicated elsewhere.
There is also an issue when it comes to the devolved Administrations. I know that the Committee has no jurisdiction in the context of devolved Administrations but we urge that there be uniformity across the piece in terms of regulation for the sake of cost to the industry as well as cost to the taxpayer.

Chris Mansfield:   I have an additional point. We made clear in our written submission—if you saw that—that there are proposals in the Energy Bill that there should be a dual lease and permit system, with the former issued by the Crown Estate and the latter by an as yet unidentified regulatory authority. That is the point that Dr. Chapman made. We are somewhat nervous, as you might expect, at the prospect of a commercial lease payable to the Crown Estate. Those of you close to carbon capture and storage projects will understand the challenging economics of those projects, so the prospect we face of having to pay a commercial lease leaves us somewhat nervous. So too does the prospect that some form of regulatory oversight—for want of a better expression—will be split between two separate organisations. The risk of miscommunication both within government and those organisations and with the industry also lends itself to the argument that we would prefer to see all of that in one single organisation. For the reasons that Dr. Chapman outlined, we would prefer that regulatory responsibility to rest with DBERR.

David Amess: I would like to thank our witnesses for their attendance this morning and for the evidence they have given. Would you now please swap places with our final set of witnesses?
I welcome witnesses to our final session. Kindly introduce yourselves to the Committee.

Michael Duggan:   My name is Michael Duggan. I lead the renewables obligation team within the Department for Business, Enterprise and Regulatory Reform.

Dr. Mark Higson:   My name is Mark Higson. I am the head of the nuclear unit in the Department.

Malcolm Wicks:   I am Malcolm Wicks, a member of this Committee but also the Minister for Energy.

Dr. Daron Walker:   I am Daron Walker, director of the Energy Bill team.

Q 211

Charles Hendry: Can I direct this question to the Minister? In his evidence, Andrew Lee, director of the Sustainable Development Commission, said he thought that the Bill was a missed opportunity because it left out changing the agreement of Ofgem, because it did nothing about regulation of heat and because it did nothing about smart metering or about fuel poverty. Would the Minister tell us why those elements have been left out of the Bill and whether he is prepared at this stage to reconsider them?

Malcolm Wicks:   The key thing is that this Energy Bill is a very important measure. It looks at a number of important aspects, including creating a fit-for-purpose licensing regime to allow the private sector to bring forward offshore gas storage. It also brings forward a regulatory framework for carbon capture and storage, which the Committee has heard a great deal about. It is reforming the renewables obligation and one or two other measures.
I do not want the Committee to think that this is the sum total of the Government’s energy strategy. I can understand people saying, “We think this is important. Why is it not in the Bill?” But we are putting in the Bill things where we need fresh legislation. You mention a range of matters but they are not ones where we currently feel new legislation is required, although we are keeping one or two of them under active review. Does the hon. Gentleman wish to press me on a particular aspect?

Q 212

Charles Hendry: The Minister will have heard, both on Second Reading and also in Committee, that issues such as smart metering have a considerable amount of support on both sides. From what we understood of the evidence of Alistair Buchanan of Ofgem, is that an issue on which we might get a statement from the Minister? Can we expect something on smart metering in particular in time for the rest of the Bill’s Committee stage?

Malcolm Wicks:   Yes. The Government are very committed to smart meters. It is a popular policy in the House as a whole. We are mindful that this could be an extremely expensive project. We will be reporting next month on the outcome of our review.
One important, rather obvious aspect, Mr. Hendry, is whether we need legislation. There is an argument that already under a current European directive, legislation may not be required. Much depends on the precise nature of our policy, how we roll out smart meters and so on. Once we have completed our review, we will be able to judge that. If we need legislative cover, we will come forward with our own proposal.

Q 213

Alan Whitehead: The provisions for the rebanding of ROCs, as far as I understand the legislation, will be based jointly on material in the Bill and subsequent secondary legislation to secure the content of the banding. Do you think that, in itself, is sufficient to deal with all the various aspects of renewable energy at various stages of development, particularly microgeneration, that will come forward? Are there other measures to think about, particularly concerning microgeneration, which could complement reform of the renewables obligation to ensure that microgeneration is brought forward?

Malcolm Wicks:   We believe that our renewables obligation and the reforms that we are making to it in the Bill are the best means of bringing forward mainstream renewable projects. It is important for confidence, including investor confidence, that we do not change horses halfway through. I am confident about the reforms that we are making. On the question of microgeneration, I am pleased that the Government have in place a microgeneration strategy, I am pleased that there are proposals to reform aspects of planning to make it easier for householders to install their own microgeneration and I am pleased that the reform of the renewables obligation gives added incentives to microgeneration through ROCs. I could say more about the low-carbon buildings programme and so on. 
Having said all that, is it enough? I am not confident that it is enough. The Committee may know that we are now proposing a new renewable energy strategy following our support for the European Union’s 2020 proposal— 20 per cent. of all energy in the Union should come from renewables by 2020. The Commission has suggested that it may be 15 per cent. in Britain and we are discussing that with the Commission, but it is going to be a very high figure. We are developing that new strategy within the Department and will be consulting on that in the early summer. As an aspect of that, we will be looking afresh at microgeneration and we are open to considering any proposals to boost microgeneration, including a feed-in tariff arrangement. I want to look at all the options, but I want make it clear that that fresh look at microgeneration is not at all about challenging the mainstream renewables obligation, which we think is fit for purpose.

Q 214

Brian Iddon: Minister, I am particularly concerned about the competition between pre and post-carbon capture and CCS technology. As a chemist, I am particularly concerned to get maximum output of chemicals from burning fossil fuels and, therefore, I support pre-carbon rather than post-carbon capture. I am dismayed that the competition has not been a parallel one and, as we have heard from previous witnesses this morning, we may lose the impetus with pre-carbon capture. Why have we not had a parallel competition between pre and post-carbon capture?

Malcolm Wicks:   We have just had a good witness session on CCS. It is in interesting area. I confess that when I was Pensions Minister, I had never heard of carbon capture and storage. With the exception of one or two people in the Committee, that may be the case for other Members. Now of course everyone is saying why are we being so slow, why only one project, why not two—any other bidders?—or three or four, and why are we doing so badly. The reality is that we are doing very well. We are, with Norway, the leading nation in Europe on this. It is probably only Norway and the United States that will get a full-scale demonstration project up and running at more or less the same time as us—we hope by 2014. It is good that the Government are backing a demonstration project.
To answer your question: we felt it right, at that stage, to make a judgment between pre-combustion and post-combustion. I know that there are important voices on both sides of the argument and I respect those voices, but what swayed Ministers at the end of the day was the clear advice that post-combustion technology was most appropriate, if we were going to make an impact on China and its huge growth in emissions, given its development of coal power stations. I do not know but if we were just looking at the United Kingdom from a purely UK commercial point of view in terms of new technologies, we might have been advised the other way. But frankly, unless we enable the Chinese—and other nations such as India—to control their emissions, then all is lost. All is lost, and what we do will make very little difference. That was the advice we received and that was the advice that we accepted. Now, I would also like to see the developments in Europe and elsewhere obviously of pre-combustion technologies.

Q 215

Steve Webb: The energy mix is, I am sure, something you think about a lot, and you must have done some scenario planning of different energy mixes in the medium term. Given that the Secretary of State, when he made his statement about new nuclear, more or less explicitly said that he was not mandating new nuclear—he was just trying to remove hurdles—it is presumably not inevitable that new nuclear will come on stream. The Government want it to, I believe, and want to clear the way for it to happen, but could you or your officials tell us about the scenario planning you have done—if, for example, the private sector were to decide that new nuclear were not viable or not attractive? What other strategies have you looked at for meeting our energy needs?

Malcolm Wicks:   Let me deal with that—although, Mr. Amess, I am anxious at some stage that my experts can join in, because the Committee is going to hear quite enough from me in the weeks to come, and it would be good to hear the experts speak, but I think this is one for me. As you know, we initially undertook an energy review where ministers—both the then Secretary of State, Alan Johnson, and myself—started off in a position we described as nuclear neutral. We were then persuaded—that is another question—that nuclear should be part of a future energy mix. But, as we were preparing our work on this, and as the public consultation—which is a very good and full consultation—proceeded, we looked at the answer to that question: what would be the alternative?
The alternative would consist of a range of measures; I cannot outline them all, but I think they might be in the nuclear consultation. I think we published those in the nuclear consultation, so they can be seen there, but clearly it would mean an enhanced role for renewables. Although, of course, with the challenge from Europe of maybe 15 per cent. of all of our energy from renewables anyway, we are going to see a hugely enhanced role for renewables, but presumably that would have to be taken even further. It would put yet more emphasis—although there is a huge amount of emphasis in government anyway—on energy efficiency.
I do not think we could have done more in the time scale about carbon capture and storage, but that would clearly be part of the picture. I think for me the worry, however, would be that in any alternative scenario, up to 2030 or 2040, you still may have had an over-reliance on fossil fuels, and it would have been more difficult—in my judgement—for us to have met our demanded targets on CO2 reductions. That is one of the reasons. The other reason I think was around national security; why we felt that civil nuclear should be part of the mix in the future.

Q 216

Anne Main: I have three brief questions. First, given the evidence we have heard this morning on carbon capture and storage particularly from Dr. Chapman, do you feel that there is perhaps a missed opportunity in the Bill? Given that the retrofitting of carbon capture and storage facilities is extremely expensive, perhaps there has been a missed opportunity regarding the meshing-together of technologies that he seemed to suggest would be worth while?
Secondly, I note you said in response to my colleague that not including smart metering and fuel poverty in this Bill was not necessarily missing an opportunity, but that it was just not necessary to do it in the legislation. Yet we have heard that the various fuel companies themselves are not being very proactive in operating social tariffs and ending fuel poverty. Perhaps you would like to reconsider, given the prominence in the White Paper that was given to fuel poverty and that its absence from this Bill sends a message to many people who are in fuel poverty that the Government are not taking it seriously enough, because they are not dealing with it through legislation. 
With regard to the smart meters that you said you were committed to, are we talking truly smart meters, not the electricity display devices that were referred to in the Communities and Local Government Committee when we had a submission from DBERR? Which smart meters are we talking about, given that there is such a wide range?

Malcolm Wicks:   Let me try those out in reverse order. We are obviously talking about the smartest meters of all, but seriously we are committed to the roll-out of smart meters, not the other display devices that you mention. In encouraging householders to be energy efficient tomorrow and the day after, the other display units may have a role to play, but in terms of a major investment in the infrastructure in our own dwellings, it has to be smart meters. The Government will say more about that next month—in March.
On fuel poverty, I do not think that my constituents would be dismayed that it is not in legislation. Many of them do not read Bills in as much detail as the hon. Lady. The serious issue is how, with rising global energy prices and steep increases in electricity and gas prices in our own country, we tackle that problem. I do not think that the Chairman would allow me to present my verbal dissertation on that, but it might be possible during the Committee stage. Within a range of measures, including energy efficiency programmes, and pension and other social security projects, there is a role for the social tariff. In other words, the companies must demonstrate corporate social responsibility as they put up their prices.
I am pleased that we have seen an increase in social tariffs from all the energy companies, and that the amount of money now going on social tariffs has increased. I recently met the chief executive officers of all six major supply companies and urged them to do more, not least about prepayment meters. The situation is that despite years of progress in reducing fuel poverty through energy efficiency, social security measures and so on, we are now seeing it move in the wrong direction because of prices. It is a challenge for all of us to develop the strategies to tackle that.
On retrofitting and back to CCS, we will consult soon on whether the new fossil fuel power stations being built should have, as part of their design and structure, the capacity to install CCS. I rather feel that they should, but we want to consult on that so that we better understand the issue, the problem and the cost.

Q 217

John Robertson: Minister, this question is probably for your experts. I asked the oil and gas people about clause 70 on the decommissioning of wells and what the purpose was, but they did not know, so perhaps one of your experts could tell us.

Malcolm Wicks:   Daron Walker will answer that. Thanks for the notice of the question.

Dr. Daron Walker:   This is about giving the Secretary of State powers to request information about the financial capability of players in UK CCS. Effectively, we are seeing a switch from large-scale players to an increasing number of smaller players entering the market. With that comes benefits, but also additional risks because their financial capability may not be as strong as some of the big global players. The power allows the Secretary of State to acquire information about their financial capability, and their ability to plug and abandon a well properly to protect the environment at the appropriate time. If the Secretary of State has concerns, he can request companies to take action, including putting up appropriate financial security to ensure that when the times comes, the environment can be properly protected.

Q 218

John Robertson: I am concerned about the phrase “when the time comes”, because if someone is allowed to invest in sinking a well or whatever, and they do not have financial backing, how far down the line do you check? Do not you check at the beginning rather than at the end?

Dr. Daron Walker:   Some of the projects obviously have very long time scales. I am talking about a well that has already been drilled, is in place, and has been suspended. Normally, you would ensure that, at the end of a well’s life, it would be properly decommissioned, and that funding would be available. If a well were to be suspended for an extended period, you might start to have concerns; you might be concerned that they are not going to “unsuspend” it and continue to produce oil and gas. At that point, you would say, “If you really want to keep this suspended and leave open the opportunity, we want some financial assurance for the taxpayer.”

Q 219

John Robertson: Minister, we all know there is going to be an energy gap around 2015, when we will be waiting for new power stations to come on line, and for renewables to give us a return. How do you propose filling that gap?

Malcolm Wicks:   I think it will not be filled by new nuclear. That would be in 2018 optimistically, but more likely in 2020. I think therefore—although this would be an answer to almost any question—we have to put a great deal of emphasis on energy efficiency. The starting point for any energy strategy now is using less of it. We have to put an emphasis on energy efficiency in factories, offices, homes, motor cars, and so on. Renewables will become more important, but we will still be heavily reliant on fossil fuels. At the moment, although we hear a great deal about the decline of the United Kingdom continental shelf, the North sea still supplies some two thirds of our total energy requirement. I think that is the proportion. Fossil fuels will remain very important in the future, which is why we are so keen on clean coal technologies and the carbon capture and storage we have been discussing. It is through a range of such measures that we will ensure that there is not an energy gap.

Q 220

John Robertson: Could that mean, then, that CO2 emissions at that time would not go down, and the level would remain as it is at that point and that we may be in danger of not hitting our targets for 2020?

Malcolm Wicks:   We have to hit those targets, and indeed the Government are so committed to that that we are putting them in statute with the Climate Change Bill. We are setting up another Committee, a commission, to make sure that we have proper five-yearly targets, and that we are on course. That is a revolutionary development in this country, and it requires a range of Government Departments, including the Department for Transport, the Department for Communities and Local Government, to play their part. I would just say that we are up for this. We have got to do it.
I used the word “revolutionary”, and as a Fabian socialist I had better be careful. However, if you take an area like housing—which is not in the Bill—the Government’s commitment that from 2016 we will build only zero-carbon housing shows the requirements that are needed, but also shows the determination of Government to meet the targets.

Q 221

Paddy Tipping: I would like to return to the discussion you were having with Steve Webb about nuclear. The Government have made it very clear that the funding for new nuclear will come from the private sector. The private sector will have to invest big time to achieve this, and will need some confidence about financial return. The key to that is the pricing of carbon, and a carbon market. The carbon market is still in its infancy. What work have you done to assure potential investors that, when the day comes, the EU emissions trading scheme really is going to have a high and sustainable price of carbon sufficient to bring new investment? Secondly, what about that curious phrase in the nuclear White Paper, which seems to suggest that if there is not an EU scheme, there could be some possible underwriting here in the UK?

Malcolm Wicks:   Can I ask Mark Higson, who is the head of our nuclear consultation liabilities unit, to tackle that question? If there are things I can add usefully, I will.

Dr. Mark Higson:   The key thing is to make a success of the EU arrangements, and that is what we are doing. The phrase in the consultation document and the White Paper is that if our efforts to have a reliable carbon price do not bear fruit, we may need to consider doing things unilaterally in the UK. That is a signal to potential nuclear operators that it is well worth their while investing relatively small sums of money at this stage to take forward generic design assessment and that when they make major investments in due course, we expect that they will have sufficient confidence that they can rely on the EU arrangements, without the need for anything unilateral in the UK.

Q 222

Paddy Tipping: What are the key dates on this?

Dr. Mark Higson:   I think the important date is when a major investment is made in pouring concrete. At that stage, companies will have to commit themselves to many hundreds of millions of pounds on our timetable—and it is an illustrative timetable; it may be sooner, it may be later—but if we have a nuclear power station up and running in 2018, probably the concrete will be poured five years previous to that in 2013.

Q 223

Paddy Tipping: If there was a specific UK scheme, how would you tackle the charge that this was a subsidy, an underwriting, by another name?

Dr. Mark Higson:   I do not think we are expecting to put in place something unilaterally in the UK.

Q 224

Paddy Tipping: So the promise in the White Paper is meaningless?

Dr. Mark Higson:   No, I do not think it is meaningless. It is a statement that if, contrary to our expectation and belief, we do not have something that works across Europe, we may need to contemplate doing something unilaterally in the UK. Precisely what that would be would depend on the circumstances at the time. We are confident that the EU arrangements will indeed bear fruit.

Malcolm Wicks:   May I just add that my colleague is right that our endeavour has to be to make the emissions trading scheme work and although I am not going to cite a price, the price, as it were, rises? That is the important thing. If that fails, we will look at a unilateral declaration of some kind, but we are not anticipating that. There is a lot of determination in Europe to make ETS work, and that is not about a subsidy for nuclear; it is about supporting low-carbon or zero-carbon technologies. It is incidentally very important for carbon capture and storage; it is also good news for renewables.

Q 225

Hugo Swire: This is for the Minister and the civil servants. In your long list, Minister, of how we would bridge the gap that Mr Tipping referred to earlier, one thing you left out was non-energy crops. I wonder whether you or your Department could enlighten us as to your thinking behind the assertion that the imposition of ROCs for non-energy crops will result in less biomass being burnt and therefore more CO2 being released into the atmosphere. Would you look at the inclusion of these caps in the Bill and if you are not prepared to remove these caps, will you make it clear later, ahead of the drafting of the renewables obligation order, that you will not pursue such a cap?

Malcolm Wicks:   May I ask Michael Duggan to start on this?

Michael Duggan:   I think you are referring to the cap on the use of non-energy crop biomass in co-firing in coal-fired power stations. We have consulted on this and it comes down to the use of the renewables obligation as a mechanism to inspire confidence in a range of technologies—wind farms, as we heard earlier from the British Wind Energy Association and the Renewable Energy Association—and a range of technologies that the REA supports. Co-firing, while it has a valuable place in reducing the carbon intensity of coal-fired power stations, also has a rather volatile place in that market because the capital investment required is fairly marginal and the industry can co-fire whenever it finds a biomass fuel that is cheap enough. We are reducing the level of support we are giving to non-energy crop biomass because, to date, it has been rather over-supported in the renewables obligation. The cap has been in place and is in place at the moment to protect investors in other technologies and we think that, on the balance of the consultation responses we had, that was an appropriate thing to retain.

Q 226

Hugo Swire: May I ask what conversations your Department has had with DEFRA, who have in the past encouraged farmers to grow fuel suitable for co-firing?

Michael Duggan:   We consult DEFRA frequently. The crops suitable for co-firing are the energy crop fuels that do not lie within the cap. Therefore, there is no constraint on them at all. In fact, we generally provide or propose to provide additional support for both co-firing and dedicated plant to encourage their development.

Malcolm Wicks:   Can I add that I am very keen that we develop a better interface—if I can put it that way—around the issues of energy and climate change, and of the agricultural community and the farming community? Yesterday I had the opportunity to address the National Farmers Union. Whether I was the first Energy Minister to do that, I do not know—it may be that I was, but I think that that shows the importance of that agenda now. As farming changes in all sorts of ways in the 21st century, I think that energy crops and aerobic digestion—as featured in “The Archers” at the moment, apparently—and all these things are going to become more and more important: renewable energy technologies, distributed energy and combined heat and power. I said to the NFU that I wanted to have regular meetings with it to discuss this relatively new agenda, which is important.

Q 227

Hugo Swire: I totally agree, but that is slightly at odds with what your civil servant just said, which is that he has not talked to DEFRA officials about the implications of such a cap, given the fact that the farmers have been encouraged by DEFRA over the past few years to grow energy crops.

Michael Duggan:   I am sorry if I was a bit unclear earlier. Indeed, I talk to DEFRA officials quite often. Certainly the whole treatment of biomass, including co-firing, is the subject of those discussions.

Malcolm Wicks:   And I regularly meet my opposite number in DEFRA.

Q 228

Martin Horwood: My questions are to Dr. Walker and Dr. Higson. A quick one to Dr. Walker: if the Minister was so minded, on reflection, to think that the Government had made a bit of an error on carbon capture and storage competition, is there nothing in the Bill that would prevent that being rethought and reorganised?
My question to Dr. Higson is on funded decommissioning programmes. A number of questions to witnesses threw up possible doubt over some of the liabilities, which followed on from what Mr. Tipping was saying. There has been the cost of very long- term storage—and Dr. Roxburgh from the Nuclear Decommissioning Authority said that you will have to ask the Government about that—and the cost of the decommissioning authorities and the nuclear installations inspectorate. Are they are going to be recovered from the funded decommissioning programmes? Then there is the issue highlighted in your own impact assessment: if the companies concerned go into liquidation or are restructured, will the funds cease to be available for these funded programmes? Are these liabilities still there for the public purse?

Dr. Daron Walker:   Can I take mine first, because I think that the answer will be quite short? There is nothing in the Bill that stops that happening. The Bill is basically about creating a regulatory framework for carbon storage under the seabed offshore, so it makes no judgments about technology at all. It is technology-neutral.

Dr. Mark Higson:   On the point about funds available, there are a number of protections in the Bill, particularly if the operator goes insolvent. There are then arrangements to ensure that the fund itself is protected. We agree that costs are long term and therefore necessarily subject to uncertainty, so what we are doing is setting up a framework that properly addresses that, with a number of protections. For example, we must have an approved decommissioning programme. The money must be progressively set aside and the funds have to build in a degree of contingency and need to be managed by fit and proper people. There also needs to be regular review of the funds—there is provision for that in the Bill through regular monitoring and quinquennial reviews—and there must be requirements for providing information where required. We expect the fund to be built up and completed before the end of the lifetime of the nuclear station. The investment strategy also needs to be on a basis of not taking risks towards the end of its lifetime; it is an offence not to comply with the programme; and, if the funds are insufficient, the operator must make up the costs. So, overall, we are setting up a framework that should have substantial protection.

Q 229

Martin Horwood: Well, substantial, but not total protection. If operators are, as you say, dependent on cash flow to build up a contingency fund, a company could go into liquidation or be restructured to the point where funds were not available before a fund was established to protect it against such long-term liabilities.

Dr. Mark Higson:   No, because if the nuclear reactor does not operate when you load it with fuel on day one, for example, it still has the costs of decommissioning. We would expect a prudent, funded decommissioning programme to make provision for that, such that there were sufficient funds in those circumstances.

Q 230

Martin Horwood: So the fund has to be established, with all the long-term costs built in, before the first day of operation of the nuclear power station?

Dr. Mark Higson:   It has to make appropriate provision for decommissioning, and that may be in the form of bonds or insurance, but it has to be done on day one. The cost of managing the waste fuel builds up progressively, so that is something where it is reasonable for the fund to build up as it goes.

Q 231

Martin Horwood: Will the cost of the inspectorates and the Nuclear Decommissioning Authority be recovered through the funded programmes?

Dr. Mark Higson:   I am afraid that I am not sure about that. The costs for generic science investment at the moment certainly are charged to nuclear operators. I am afraid that I do not know the detail, but I would not have thought that it was material to the overall cost of decommissioning.

Q 232

Martin Horwood: And the cost of the very long-term storage, which Dr. Roxburgh asked us to ask you about? In other words, what would happen thousands of years into the future if these sites were not completely—

Malcolm Wicks:   Who asked you? I did not catch the name.

Martin Horwood: Dr. Roxburgh from the Nuclear Decommissioning Authority.

Dr. Mark Higson:   There are two points there. One is that there is to be intermediate storage of waste. Ultimately, however, the long-term disposal policy is that waste should be in a geological repository. That will need to be of a standard that is capable of storing that waste permanently.

Q 233

Martin Horwood: Without any maintenance or security?

Dr. Mark Higson:   Ultimately, when it is capped, yes.

Q 234

Martin Horwood: You are talking about it being capped without the possibility of access?

Dr. Mark Higson:   There is obviously an issue about the point at which it should be sealed, and that is something that Corum particularly looks at. The Government do not need to take a decision on that at the moment. There will be a potentially quite long period in which materials are put into the geological repository, and the decision will be open at that stage as to whether it should be retrieved. Eventually, however, there needs to be a decision.

Q 235

Martin Horwood: So you have not actually taken the decision on whether the site should be accessible and, therefore, whether there would be long-term costs in terms of security and management?

Dr. Mark Higson:   It will be accessible for a long period while the waste is being implaced. A decision needs to be taken in good time about when it should be capped.

Malcolm Wicks:   Subject to correction by Dr. Higson, I think one imagines that the eventual capping would probably be some time during the next century, so we have a little time to work this through.

Q 236

Jamie Reed: I shall spare you, Minister, and colleagues from any personal nuclear discourse, which I shall save for the Committee stage proper, when Mr. Horwood and I will go at it properly, I am sure. However, I think that the Bill is genuinely radical, and many people, me included, come into politics to push this kind of Bill through the House. It is exciting; it looks to the long term; and it looks after future generations in a truly comprehensive way, but it cannot do that unless it brings into question any doubt about whether we can do what we say we want to do through the Bill.
My concerns are about CCS. It appears that we want renewables to work, and we are committed to that. Yes, we want nuclear to work, and we are committed to that. Yes, we all want CCS to work, and we are committed to that. However, if CCS does not work, I do not see how we can secure our twin aims of reducing our CO2 emissions and establishing security of supply in the way that we want. To what degree are we betting the house on CCS working?

Malcolm Wicks:   I do not think that we are betting the whole house. Earlier, someone gave a figure of about 25 per cent. for the CO2 reductions that we need to make. It could come from CCS, although there will no doubt be different views on that. I think that CCS is crucial. When I came into the Department two and a half years ago, my very wise officials said, “Minister, you’ll hear about all sorts of technologies. Don’t get overexcited about any of them. It’s your job to put in place the framework.” For the range of important and weird and wonderful renewable technologies, that is quite good advice; but for CCS, I see no alternative at the moment—perhaps one day the scientific community will develop an alternative of safely eradicating and disposing of CO2. But at the moment, CCS is the only show in town.
I mention China again, because there is no point in looking at this from just a UK point of view. Unless we develop this technology as rapidly as we can—that does not mean that we are going to be there next year—I think that we are in deep trouble as a planet, I really do. I think that this is very important. You can argue about this, but at the end of the day, it is partly about resources. I am proud of the fact that the UK is actually ahead of the game internationally—along with only a few others at the moment. I wish there were more rivals developing demonstration projects. There is the US; there is Norway and other countries have an interest, but the UK should commercially become a centre of excellence.
As my colleague said, all the Bill does is set up a regulatory framework, so that we can get storage, transportation and all these things right. We as a Government—and taxpayers—are backing a demonstration project, but there is nothing to stop other projects developing in the future. We heard from the association about different companies with different interests in CCS. I think that my challenge to some of the big companies—quite well-off companies internationally, operating in Britain—is “Why don’t you come forward with your own demonstration project? As part of your environmental and corporate social responsibility, don’t just talk the talk and place the nice adverts about how you are turning green, but actually yourselves fund a CCS project.” I do not believe that it is so extraordinary to think that they should do that. They know climate change is a big challenge to industry, in terms of fossil fuels.
We, the Government, are showing a lead. The taxpayer is showing a lead. Our constituents are funding a project. Is it so outrageous to think that one or two big companies in Britain and Europe might themselves develop projects? That would involve a lot of gains for them, both commercially and technologically and in terms of public confidence. It should not always be a question of us saying: “Why isn’t the taxpayer doing more?”

Q 237

Albert Owen: Just on the nuclear issue, I think that Mr. Higson has dealt with the waste aspect, although I feel that many members of the Committee will not be satisfied with that, and will take the opportunity later on in Committee to discuss it further. I understand why there was a delay, because of the court case, with regard to the announcements on new build, but why could we not have a neat package, saying yes for new build to go ahead? The strategic site assessment is complete and the waste issue has been dealt with, so that many of those people who are feeling uncomfortable with the latter two could understand the way forward and the Government’s thinking.

Dr. Mark Higson:   I think that it is entirely reasonable for the Government to take a view first on the principle. That was the issue of the consultation. When the decision on principle was taken, we then set out a programme about how that decision can be implemented in practice. The number of steps will take time to do properly. One of them that you did not mention was generic design assessment, which is on the critical path. That is in hand: it will take about three or three and a half years. Strategic siting assessment needs to be fitted within the overall timetable. That will take time, and we will be consulting further on that, including, in due course, on the siting criteria. All those things take time to develop properly and to engage properly in public consultation.

Q 238

Albert Owen: So this has been going ahead while the other work has been held up—

Dr. Mark Higson:   Generic design assessment, which is on the critical path, has been going ahead on a contingency basis. If the Government had decided that nuclear did not have a role to play, the work that had been done on generic design assessment during the consultation period would obviously have been wasted. So it was done on a contingency basis.

Q 239

Albert Owen: And is the industry, in your opinion, confident that it is getting the information that it needs if it wants to invest?

Dr. Mark Higson:   I believe so. There is a lot of interest. We are talking now obviously to many of the companies involved. There is a very high degree of interest in wishing to push forward this agenda.

Q 240

Steve Webb: Just on this CCS competition issue, I am not aware—I apologise for my ignorance on this—how much the Government are putting into the demonstration project. What is the taxpayer’s commitment, if any? Linked to that, I have a general concern about inactivity. The Minister sits there and implores companies to come on board. Although we are not betting the whole house, whether we can make carbon capture and storage work is fundamental to the planet’s future. He just hopes that companies will do it out of good will and in the name of corporate social responsibility. Is there not a disconnect between the scale, magnitude and seriousness of the problem and the Minister saying to energy companies, “Be good chaps and give us a few more million in social tariffs.”? Is more direct Government intervention not needed?

Malcolm Wicks:   Yes, Mr. Webb.

Steve Webb: Steve is fine.

Malcolm Wicks:   Or Professor Webb. Please listen. That is why we are doing a demonstration project. It is a ridiculous caricature to say that I sit here asking companies to do more. I do not think that it is unreasonable, following the history of the “polluter pays” principle, to say to companies that they should come up to the starting blocks and do projects themselves. You missed the point, Steve—not deliberately, I am sure—that we, by which I mean the taxpayer, are funding a demonstration project.

Q 241

Steve Webb: How much?

Malcolm Wicks:   I am not going to tell you how much, and I shall tell you why.

Q 242

Steve Webb: Orders of magnitude?

Malcolm Wicks:   We have now got a commercial competition. We are inviting different companies, singularly or together, to come forward with proposals. We feel that it would be foolish to tell them what to put on the invoice.

Q 243

Steve Webb: What scale? I have no idea of the scale. Are we talking about £1 million, £10 million or £100 million—how many noughts?

Malcolm Wicks:   We are talking about substantial amounts of money—tens and tens of millions of pounds. I might be able to let the Committee know in confidence, but I would have to take advice on that. However, I do not want to be telling these guys what they should be asking for. That would not be right. However, I think that you are being unfair if you are saying that we are just asking others to do it. We are taking a lead. We live in a cynical nation, Mr. Amess, I am afraid to say, with the exception of yourself. As soon as we say that we are doing something, there is a bidding war—“Why aren’t we doing twice or three times as much?” This is taxpayers’ money.
We are one of the very few countries in the word backing a demonstration project and will be among one of the first two or three nations to have a CCS project up and running. It has not been done anywhere yet. Do not forget that, Steve. No one has done the whole chemistry set of a power station fitted from the start with CCS technology and then transported and stored the carbon, in Britain’s case, almost certainly under the North sea. No one has done that, and it is good that Britain is doing it first. However, if you admonish me for saying, “Wouldn’t it be a nice idea if some of the companies making money out of fossil fuels also demonstrated that technology,” I shall not apologise. I think that the private sector has an obligation, as well as the state.

Q 244

Steve Webb: At the other end of the scale, you very profoundly and rightly, in my view, said that any sensible approach to energy has to start with energy efficiency. Here we have a complete energy Bill that seems to have nothing to say on that subject. Are you saying that no more legislative action is needed to drive forward energy efficiency?

Malcolm Wicks:   No, not at this stage. I do not want to play the departmental game, but energy efficiency is a DEFRA lead, although we work very closely with it. We have introduced a range of policies and energy efficiency measures, such as the former energy efficiency commitment, about to become CERT—the carbon emissions reduction target—the Warm Front scheme for poorer people and our longer-term policy of incentivising supply companies to persuade householders to use less of the stuff—less gas and electricity. That is becoming of energy service companies. I shall not legislate for the sake of it. We will legislate only where we think that such things are necessary. We do not think that such new measures are needed in this Bill.

Q 245

Charles Hendry: Can I pursue that point further, Minister? Some 40 per cent. of our housing stock in this country is properly insulated. We have not made much progress in that area. Earlier on, the Minister spoke about new build and the Government’s zero-carbon programme in 2016. However, new build represents 1 per cent. of the housing stock every year. If we are really going to make progress on energy efficiency, we must do much more about the existing housing stock. Is he really saying to us that nothing more is needed to drive that programme forward?

Malcolm Wicks:   At this stage—things might change in the future—I am saying that I have not seen the case that new legislation is needed in the Bill. We have a raft of ideas and measures that are developing. I think that Mr. Hendry is right to say that we need to do far more. We are in a better position than we were, say, 10 years ago. In recent years, as a result of the energy efficiency commitment—the Warm Front scheme and so on—some 2 million households have benefited from new energy systems, loft insulation and draft-proofing. That is very substantial. But the point that I made earlier is about how we transform the supply companies that have a vested interested in persuading us to use more electricity and more gas. It is about how we persuade them to become part of the solution in terms of reducing CO2—I think that they are up for it, by the way. They are incentivised financially to do that. We are now involved in that major development with the companies. Smart meters are another aspect of it.

Q 246

Charles Hendry: But in other parts of the world—notably the United States—supply companies are required by law to work with their customers to reduce energy demand. If they reduce demand, they share the dividend, so the customer gets lower bills and some of the saving goes back to the companies. Does the Minister believe that there is some merit in looking at a legislative approach to require the supply companies to do more than they are currently doing?

Malcolm Wicks:   I agree very much, but we must be careful. At the moment, the supply company supplies gas or electricity; it sends round a meter man—often very early in the morning at a weekend in my experience—and it sends a bill, which we pay. That is more or less the end of the relationship. How do we move from there to a situation where the company will come at our invitation, look at our house and talk about thermal efficiency, renewable technologies, the importance of smart meters and all those things? That is where we are going to move to, and we are on that journey. I have not been advised that that requires legislation. We are certainly not there yet in terms of suggesting that there is a need for that in the Bill.

Q 247

Paddy Tipping: You talk about the responsibilities of energy companies. Of course, a high and sustainable price of carbon would force CCS development.
Let me turn to the social responsibilities of energy companies. Some of them do pretty well—EDF, E.ON—but others such as npower and Scottish and Southern Energy, although they have low prices, do not do very much on social tariffs. On Second Reading, the Secretary of State made it clear that he was still open-minded about whether social tariffs should be made mandatory. Is that the still the position? Are you saying to the companies that you meet regularly, “Look, unless you perform and do more, we could introduce legislation.”?

Malcolm Wicks:   Yes, that is what we are saying, but we do not foresee it in the Bill. It is interesting to be the non-interventionist here today. Much of my career has been spent arguing for intervention in a range of social areas.

Paddy Tipping: That is what Fabian socialists do.

Malcolm Wicks:   Indeed—but gradually, as you will recall.
We are not convinced that we need legislation at this stage. We would far rather talk with the companies, as we have done. I have met the CEOs individually over the past six to nine months. Only a week or two ago, I asked all the CEOs to come to see me and said, “Look, we have a problem now.” We have got a problem with rising energy bills, and it is one we take very seriously. We have made some steps forward, as I said earlier. The companies are now spending more money on social tariffs than ever before. They are making advances. I have said to them that we have to do more. In particular, it is up to the companies, not the Government, to look at the problem of prepayment meters, because it cannot be right that some of the poorest and most vulnerable people are paying far more per unit of electricity and gas than most of us in the Committee. That is an aspect of how the poor pay more, which is quite a familiar theme in terms of social injustice. Two companies have now moved in a reasonable direction on this, and I would like the others to understand parliamentary concern about it.
I think that there is a danger if we did mandate social tariffs. What would we say? Should we tell companies to spend a certain percentage or to help this group or that group? All that might happen is that they would do the minimum and no more and think that they have discharged their responsibilities. It may be that, by having a non-mandatory approach, we are encouraging more innovation.
Secretary of State John Hutton and I are looking at this very carefully. If we felt that there was a case for legislation, we would legislate. I hope that the companies are listening to that strong message—a message reiterated to me every day by Members on both sides of the House.

David Amess: I have three colleagues who still want to ask questions and five minutes left.

Q 248

Alan Whitehead: We have heard a great deal about the idea that perhaps new gas or coal-fired power stations would be required to be CCS-ready if permission is given for them to proceed, presumably on the basis that if one simply contemplated a whole new generation of gas and coal-fired power stations coming on line without any mitigation whatsoever, we would simply miss our CO2 targets by a mile. You have recently given permission for two power stations to go ahead provided that they are CHP-ready. As we discussed in relation to carbon capture and storage, are there any other measures that you think should be undertaken to make the idea that power stations might be CHP-ready a reality?

Malcolm Wicks:   I am very interested in the CHP issue and very sensitive to the fact that our policies have perhaps lacked a heat dimension. I think that that is a reasonable charge, and I put my hands up to it. The new Office of Climate Change—a cross-departmental agency—has recently produced a report on this, and we want to move forward on heat in general.
I have been to Copenhagen. Greenpeace invited me to see the big CHP plant that powers a huge proportion of the homes and offices of Copenhagen. I accepted that invitation from Greenpeace, as long as they promised to bring me back—it was not clear, but they did. I was very impressed by the plant, and I have asked companies here why is it that, when we build new power stations, we are not using the heat, even from a commercial point of view. There are a number of technical and logistical answers to that question, but I think we have to take combined heat and power far more seriously, and I am very interested in how we will do that.
In terms of Dr. Whitehead’s train of thought on this, I always think that it is helpful to think where we might be in the future. I am not putting down a policy prescription, because I cannot do that for the whole European Union. However, my guess is that, at some stage, we will simply not allow companies in Europe to build fossil fuel power stations unless CCS is an integral part of that. I am not so certain about whether there will be something similar on CHP. If that is the direction of travel, I think that it really makes sense for Governments and companies to think through the implications of that for their own resources and activities.

David Amess: Can I ask our two colleagues who still want to ask questions to put them one after the other, and then perhaps the Minister can quickly reply?

Q 249

Brian Iddon: My question is about the national grid. Clause 40 is about granting licences to develop offshore electricity transmission; but with different and changing pressures, with installations closing and new installations opening, is the national grid fit for purpose at the moment? If not, what must be done?

David Amess: You have just the one question there.

Malcolm Wicks:   Can I ask Dr. Walker to tackle that one?

Dr. Daron Walker:   Clause 40 is actually all about offshore transmission. Shall I talk a little bit about that in terms of the regime we are setting up? In recognition of the fact that we are looking to expand offshore renewables massively, we have committed to £2.4 billion of investment, in effect, to offshore transmission, by looking to have 8 GWe of offshore wind in place in the next few years. The clause is part of a broader set of powers that were taken under the Energy Act 2004, to allow us to introduce competition in the process of building transmission assets out to these new developments. The powers in clause 40 will help to facilitate that process. By introducing competition, we expect and hope to make the transmission asset build cost much less for the consumer. We estimate that there will be between £230 million and £400 million in savings by the nature of the process that we are putting in place for that.
On the broader question of whether the national grid is fit for purpose, clearly there are issues being pursued in the context of the BETTA—the British electricity trading and transmission arrangements—queue in Scotland, for example, for connecting renewables, and we are working closely with Ofgem, the companies, the developers and the national grid. There are things that could be going better, but if you are asking me whether they are fit for purpose, of course I would always say that they are fit for purpose, but there are things that we need to improve, and we are continuing to work to ensure that those improvements are made.

Malcolm Wicks:   Just to be helpful to the Committee, when I was being cross-examined by Steve Webb about the cost of CCS, I was mindful of things that I should not say. I am now advised that, if I told the Committee that we are talking in terms of hundreds of millions of pounds for CCS storage, that would provide a reasonable guess about the costs that we have in mind.

David Amess: My thanks to the Minister and his officials for their evidence to the Committee.
Further consideration adjourned—[Alison Seabeck.]

Adjourned accordingly at one minute past One o’clock till Thursday 21 February at Nine o’clock.